Church & Dwight Co Inc Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Chris Carey - Wells Fargo Securities, LLC - Analyst : Hey, good morning, guys. Thanks for the question. Hey, how are you? I'm going to start with the outlook for Q4. I want to understand if there are any inventory timing dynamics, which are going into Q3 or Q4? Or if this outlook is primarily reflecting, I guess, a view that consumption trends should start to decelerate through the quarter as you lapse some of these a typical benefits that maybe you've seen of late. And so, we should be expecting that? And perhaps just some lingering conservatism about not trying to call any improvement in category growth rates versus, say, again, some inventory or shipment timing dynamic? Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. I'll take the first one, part of it on inventory, maybe Matt will talk about the category consumption growth rates. We hear small things on retail inventory, but not anything that we would call out and not enough to impact anything. There's small examples, but not enough to influence what we would be calling.

Question: Chris Carey - Wells Fargo Securities, LLC - Analyst : Okay. That makes sense. Then one quick follow-up would be there's an expectation over time for the US business to be delivering 4% topline growth. Clearly, you're still trying to figure out what the appropriate level is in the current environment relative to where the categories are going. But how much visibility do you think you have in that topline growth objective in the US from here? It's not really a 2025 guidance question per se, but just the ability to deliver against an objective which came up by about a 1 point relative to past in the current environment? And if not, how long do you think you'd need to get there again? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call

Question: Chris Carey - Wells Fargo Securities, LLC - Analyst : Yeah. Sorry, if I didn't come across. That was really embedded in the question. Thanks.

Question: Rupesh Parikh - Oppenheimer & Co. Inc. - Analyst : Good morning and thanks for taking my question. So just going back to the vitamin business. So an impairment this quarter, how are you thinking about the path to stabilization and then growth? Do you think in '25, we maybe start to see stabilization in that business? And just any green shoots maybe you're seeing with the efforts there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call

Question: Bonnie Herzog - Goldman Sachs Group, Inc. - Analyst : All right. Thank you. Good morning. I had a question on your marketing investment scene. You called out expected stepped up spend in Q4, and you raised your guidance a bit this year to more than 11% as a percentage of sales. So could you give us more color behind the greater investments in terms of types of spend, any changes with strategy, either channel, medium, et cetera? And then I would be curious to hear if more of the dollars will be shifted internationally. And then, if I may, finally, just on a go-forward basis, should we assume you're going to continue to step up this spend as a percentage of sales in the next several years to support your 4% organic sales growth expectations as you've called out in your evergreen model. Thank you. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Hey, Bonnie. It's good, detailed question. I'll start, and I'm sure Matt wants to add a couple of thoughts. But when you look at our raise of marketing spend, I mean, going to 11% to somewhere between probably 11% and 11.5%, that's meaningful. That's $20 million-plus in some cases. And some of that is international across markets because we're driving different brands, and they're doing really well too. But THERABREATH expansion, HERO expansion, Sterimar, BATISTE internationally. But in the US, we have a lot of places where we're spending, but most of that spend is bedind our innovation again. Like this is one of our best years of innovation. We believe that's why we're getting share in many cases, that's why we're doing so well and REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call overdelivering even our timing expectations. And so, a lot of the marketing spend goes behind things like Deep Clean on laundry, things like SHEETS on laundry, things like Hardball on litter, and our new BATISTE Touch.

Question: Steve Powers - Deutsche Bank - Analyst : Thanks very much. Actually, to follow up on that -- sorry, I might have missed it in your answer, but the marketing spent in the third quarter came in a little bit lower than least external expectations. Obviously, made up for in the fourth quarter. But was there anything from your perspective that shifted that marketing support from 3Q to 4Q? Or is it just more of anomaly versus how we all on the outside modeled it? Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. I think it is more of an anomaly. We're getting very specific, but we were up 80 basis points in Q3, which is a significant increase. We had told everybody that we were going to be down a few hundred in Q4 because we were spreading that spend that was maybe a little higher in Q4 last year over to Q1, Q2 and Q3 to better support innovation. And I wouldn't even call it timing. It's probably just a disconnect between the outside models and what we were going to do.

Question: Dara Mohsenian - Morgan Stanley - Analyst : Hey, good morning, guys. So first, just a follow-up on category growth. Matt, you didn't sound particularly excited about the pickup in category growth in September, October. Is that just because you think a lot of it was driven by hurricane volume. And as you parse the underlying data, you didn't necessarily see as much of a pickup. Is it just a short enough period of time that you're not much more enthusiastic around category growth. And I know you touched on it a bit, but just trying to get a sense as we look beyond Q4, if we're in this more muted category growth environment given the lack of pricing or if you think you're starting to see some green shoots from a category perspective? Thanks.

Question: Dara Mohsenian - Morgan Stanley - Analyst : Great. That's helpful. And then on HERO and THERABREATH, can you give us an update on how much of the business is international today for each of those brands? And how much incrementality you see looking out to 2025 in terms of expansion potential?

Question: Peter Grom - UBS Investment Bank - Analyst : Thanks, operator. Good morning, everyone. I just wanted to follow up on Dara's question there. And maybe just to be clear, can you just help us understand what you are assuming for category growth in 4Q. Matt, I think you just said you're kind of assuming the September trends for the quarter rather than the stronger October or the weaker July and August. So I just wanted to clarify that. And then I guess, if that is the case, if you are assuming slightly stronger category growth this quarter, and apologies if I did miss this, but can you maybe help us understand what's driving the sequential slowdown in the 4Q organic sales? Thanks.

Question: Anna Lizzul - Bank of America - Analyst : Hi, good morning. Thanks so much for the question. I wanted to touch on gross margin, which outperformed this quarter. The guidance for the full year seems a bit conservative. So I was just wondering if you could talk about your outlook on commodity costs and manufacturing. I think you noted in Q3 that manufacturing costs were a bit higher. Is that also expected to impact Q4? Thank you. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. Hey, Anna, it's Rick. I think from a gross margin perspective, you're right, it's a little bit more conservative if you say the full year is at [110]. It means Q4 is up slightly. I would just remind everyone that Q4 a year ago was our high watermark at [44.6]. That's part of it. Some of the commodities were flat in the first half, like ethylene, they are up in the back half around 9% same for linerboard. We have investments in our warehouse that we talked about at Analyst Day and our network and that built throughout the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call So yeah, could that be a little conservative? Maybe. I think also we have -- as we look forward, we still are seeing inflation like that's what we're seeing. And our job is to offset that with productivity and we're focused on. And the other thing on gross margin is as we make investments to support these new products like in trade or couponing that also impacts gross margin. So that's an eclectic and wide-ranging view, but those are the details.

Question: Lauren Lieberman - Barclays Bank PLC - Analyst : Good morning. Just want to talk a little bit about promotional environment in laundry in particular. In last year's fourth quarter, you talked about pulling some of the unprofitable promotional activity and scanner sales were down. So just want to think about 4Q. Is it kind of like an easy comp as you get into fourth quarter? Or is it were at like the right base now and last year was the adjustment period? And anything else you'd add on the promo environment in laundry? Thanks.

Question: Lauren Lieberman - Barclays Bank PLC - Analyst : Yeah. The one that I noticed also Deep Clean has been really successful and maybe me being too picky, but it was interesting to me that some of the Q&A thus far when you've been talking about laundry innovation, you're putting themes like a bit more emphasis on SHEETS versus Deep Clean. Can you maybe talk about like the direction travel you see for category development. How significant do you think sheets can be? Because (inaudible) of course, has been doing a trial of this as they go, probably really helps to amplify awareness in the category this form. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call So just curious your thoughts on the relevance of SHEETS as a new form. And then the profitability of that versus the traditional liquid business even the higher price point Deep Clean?

Question: Kevin Grundy - BNP Paribas - Analyst : Great. Thanks, good morning, everyone. Question on litter and the promotional environment there and how you potentially intend to respond. Matt, as you mentioned, Clorox has stepped up promotion levels to remarkably high levels. Most of the regained share that you're seeing with first step is coming at the expense of ARM & HAMMER. So a couple of questions. Have you been surprised by the magnitude of the spend here on trade support from Clorox. It's taken dollars out of the category. It doesn't do anything to impact consumption. It seems like you're trying to get the share back in one quick swing. And then how do you intend to respond? It kind of feels like it has ear markings of a potential price war like we saw in laundry, like over a decade ago. But Rick, if I'm interpreting your tone correctly, it seems like you're generally okay relinquishing the share gains over the past year. So your thoughts there would be appreciated. And then I have an unrelated follow up. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. I'll give you a couple of comments, and then Matt will chime in, I'm sure. Like my comments, we're really happy with where we are at litter. This year-over-year -- as Clorox was back in stock is what it is. Our baseline volumes are higher than they were. Our shares are higher than they were. We are really happy with 40% or so share gain if you look back when this whole stuff started. We're not going to go chase share on a race to the bottom to go promote. If we promote, it's going to be behind our innovation to go drive a fair share in lightweight litter because we think that's where the opportunity is. So that's what we're doing. I'm optimistic that we're going to retain share because that over time, it's difficult for cats to switch litters. It just is. After they've been out for a while, and they have one product that's what they get used to. So that's also why maybe the effectiveness of some of the competitor promotions aren't as high as they used to be because it's hard to switch litters or Hardball. So anyway, that's some context. Matt, anything you'd like to add?

Question: Kevin Grundy - BNP Paribas - Analyst : Okay. A quick follow up, and then I'll pass it on. Just on portfolio pruning. So Rick, I think you've expressed and opened this year, which has generally not been part of the company's strategy for a very long time. We naturally had the CEO transition, which is going to be occurring in March. You need to bring a CFO on board. If you could just give us an update on potential parameters, scope, timing of what seems like it will be a potentially newer leg to the stool, if you will, of the company strategy? And then I'll pass it on. Thank you. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. I mean, as a backdrop, you got to remember, a lot of stuff that we do and we're going to keep doing. The company is performing extremely well. The strategy is sound. We're leaders in e-com growth as an example, M&A is best-in-class. We can identify, acquire, integrate and grow acquisitions. We do a few things uniquely in the company every year. We value every brand that we have. And we know what brands or businesses are creating value or destroying value. And we take that back, and we usually have internal teams to go turn that around or address root causes and to the extent that we don't, then that's when things -- more strategic conversations are at. I'm not going to front run any of that. I'd say maybe in early to mid next year, we'll talk more about that. But it's really, we've been doing it for a long time. It's what we do internally, and we got a whole mirror up to all of our brands, just like when we do acquisitions. But remember, we have a great portfolio of brands. We have a high-performing company. We're gaining share in most of our businesses. So we're coming from a position of strength. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call

Question: Andrea Teixeira - JPMorgan Chase & Co - Analyst : Thank you. Good morning. So on the gross margin side, how should we be thinking about the puts and takes ahead of commodities, and the timing of certain contracts influence your view, especially in fiscal 2025. And a follow-up on the M&A. I think that's the only question we haven't asked yet. In terms of like how you're seeing the landscape. I know you're very purposeful and cautious about what your targets are, but just as a follow-up and an update on how you're thinking about inorganic growth? Thank you. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. I'll take the gross margin question. I would say -- I commented already we do see inflation as we look forward, we see inflation, our job to offset that through productivity. As you take a big step back though, the different macroeconomic indications like China demand and really the US economy stable but not outsized growth. We have taken a position of not hedging as much as we usually do, believing that some of those commodities will come down over time. So I would tell you that's probably a good indication of our expectations as we go forward.

Question: Andrea Teixeira - JPMorgan Chase & Co - Analyst : I was just like thinking more how it's been. I know it's part of your algorithm long term, not necessarily, of course, what you give in the evergreen model does not include that. But indirectly does, because you as you create, as you buy these brands and companies, you create future growth and is part of your long-term algorithm. So I was thinking like more it's been a while since you're accumulating cash since you've done acquisitions. Of course, the last year were very good, very accretive. So just thinking of how we should be approaching that? Or we should be thinking you're focusing more inorganic at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call

Question: Filippo Falorni - Citigroup Inc. - Analyst : Hi. Good morning, everyone. I wanted to ask you about innovation and maybe you can give us some context of the contribution from innovation this year in laundry and the rest of your business? And just any plans for 2025, and like areas of potential further innovation. And then a quick follow-up. So on the gross margin, as we think about elections and potential for tariffs, last time, there was some implication on the WATERPIK business from some portion that were reported from China. Maybe can you remind us any potential exposure on China tariffs? Thank you.

Question: Bill Chappell - Truist Securities - Analyst : Good morning and thanks for squeezing me in. Going back to vitamins. So I guess I'm having a tough time. Help me understand two things. One, just from a business standpoint, I mean, are you now thinking you need to spend more money behind it in '25 because with you being down 10% and the category being down basically flat, I'm not sure, I understand the green shoots. It seems like things are getting worse. And so, you can either step, up and put a lot of money behind it or you can ease back and manage it more and more for cash. So are we at that point in a decision standpoint? And then second, kind of related. I also don't fully understand maybe the impairment charge 10 years after acquiring the business. So maybe you can help me understand why that was there and the timing and what that says, if anything? Thanks so much. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. Sure, Bill. I would say -- let me take, I guess, the second one first is when we do an impairment charge, all that is just looking forward of our model on what our growth rates growth rate assumption is and what the category is growing at and what our expectations are as well as our margin expectations, and they've come down since we originally put all those assets on the book. And so, it's kind of a reconciling of that, right? The original expectations to what our current number is after we have amortization and we have value that versus the intangible numbers, and we say, we have a gap and future growth and profits aren't as strong as they used to be. And so, that's how you take a charge 10 years after. Your first question was on why do we think will we be putting more money behind it? We're not going to go chase incremental spending on promotions, and trade and advertising. That was a few of the levers that we pulled this year. And you're right, some of that is not working as we had hoped. Some of the things are working, and they do have green shoots. The biggest most important single thing that we can do is make sure that our core products are delaying the consumer. And that's why we're so focused on the innovation piece. We think this is the first time in a few years that we've put the full strength of the company on reformulating vitamins so that we have our taste advantage back. We're hitting key marks in the market on sugar free, on plusing up our vitamins. So all those things are, I think, putting us in a better position to compete, and they're way more important than spending more on trade or getting displays or do another packaging stuff. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call

Question: Bill Chappell - Truist Securities - Analyst : Got it. Which leads me to just on next year, we won't be having a conversation. So congratulations on the -- I know, we'll have you for a few more months, Matt, on the retirement and Rick on the promotion? Thanks.

Question: Bill Chappell - Truist Securities - Analyst : I wouldn't miss it.

Question: Olivia Tong - Raymond James & Associates, Inc. - Analyst : Great. Thanks so much and congrats on retirement and promotion to you guys as well. My question is primarily around some of the more recent premium price innovation that you benefited from, particularly in laundry with Deep Clean and the POWER SHEET segment and litter as well. So as we go into a potentially more -- or we are in a more challenging backdrop, does your trade-up opportunity become more challenging relative to your peers, when macros get more challenging since your consumers, obviously skew a little bit more towards value to you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, CHD.N - Q3 2024 Church & Dwight Co Inc Earnings Call Therefore, I would imagine that they are a bit more pressured relative to consumer average. So just wondering about your ability there. And then the mix implications, given that you obviously have been able to continue to eke out a bit of mix benefit in the domestic business despite obviously all the pricing lapping? Thank you.

Question: Olivia Tong - Raymond James & Associates, Inc. - Analyst : It was just around mix more importantly, and the impact of mix as time progresses, but I think you answered that within the top line question.

Question: Javier Escalante - Evercore - Analyst : Hi. Good morning, everyone. I wonder whether you can expand on the international business in the context of the increase. Your reinvestment in Q4, if you can flag geographies or brands that you are seeing most traction? And also, whether there is any measurable contribution of the business that you acquired in Japan? Or is it just too early? And then I have a follow-up?

Question: Javier Escalante - Evercore - Analyst : And the follow-up is on the legacy, let's call it that way. The Detergent business, Deep Clean doing well. Do you try -- this is kind of like the second iteration that you go into mid-tier. You need the OxiClean detergent, I believe, and didn't pan out. So what is driving this success time around? Do you feel it's a consumer something with the competition from our friends in Germany, is that the retailers are more susceptible to this mid-tier, anything that you can that you can contrast relative to the OxiClean extension in detergent that didn't pan out as well as Deep Clean. That would be very helpful. Thank you. Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. It's a fair question. I think it's a simple answer. OxiClean is (technical difficulty) brand, but it's an additive brand. And it was not a consumer -- there was consumer confusion as we try to go into laundry. It just didn't make the connection. Here, ARM & HAMMER is well known for laundry, and just going up and down the tiers is a much easier proposition. That's why I think we're finding early success.

Question: Korinne Wolfmeyer - Piper Sandler - Analyst : Hi. Good morning. Thanks for taking the question. As we think about some of your innovations next year and particularly around the VMS business, how should we be thinking about R&D spend and some of this extra innovation spend. Is there any risk to the SG&A as we head into next year due to these investments? And then, anything else we should be considering? I think you called out some IT spend that was a bit of a headwind. Anything else to consider for SG&A as we head into Q4 next year? Richard Dierker - Church & Dwight Co Inc - Chief Financial Officer, Executive Vice President, Head of Business Operations Yeah. We don't -- I mean, over a long period of time, we spent around 2% of SG&A in R&D, and that's been a pretty good number for us. Next year, we're implementing an SAP project, redoing our -- updating our ERP system. The last time we did that was 2009, which is time for an upgrade. But I wouldn't really qualify or call anything at this point in time. We'll do that in January at our Analyst Day.